CHINA (PRC)

REPRESENTATIVA OFFICE (RO)

ESTABLISHING A REPRESENTATIVA OFFICE (RO) IN CHINA
Establishment of a representative office has become the most common means of establishing a long-term presence in China. Chinese law restricts the scope of activity undertaken by such offices to "indirect business activity." A representative office may act as a liaison with Chinese contacts, implement contracts signed outside China by the home office, and undertake market research. Such offices may not engage in trade, receive fees for service, sign contracts or directly generate income.

Its main attractive force is that it is simpler and cheaper to set up than either an Articulation Venture of a Wholly Foreign Owned Endeavour since no Registered Working capital is called for, startup costs are roughly 10% of the cost of establishing either of these. Representative Offices are also open to almost all industry sectors, including some sectors that are off-limits to Articulation Ventures and Wholly Foreign Owned Endeavors. Furthermore, the Top dog Representative demands not shack in China. However, Representative Offices are very limited in the activities that they may transport out.

WHY DO FOREIGN COMPANIES SET UP A REPRESENTATIVE OFFICE IN CHINA?
1. To deal preliminary research before deciding whether or not to do a direct investing in China.
2. To supply data and promotional stuffs to potential people and/or clients.
3. To organize the activities of its parent company in China.
4. To do traveling agreements for representatives of its parent company or Chinese clients or potential clients.
5. A foreign company might already be doing business organization with China from overseas but want the marketplace incursion to justify a full-blown investing (some of these Representative Offices later upgrade to Wholly Foreign Owned Endeavors, Cooperative Articulation Ventures, and Equity Articulation Ventures. Line that in certain industries such as insurance and cashes in hand there are sectors that call for foreign investors to run a Representative Office for at least 2 years before making a direct investing.
6. To employ local employees to aid them encountering providers.
7. As a cheap and simple mode of doing business organization in China by exceeding its legal reach of business organization. This is not a good thought because it is likely to acquire the company in problem with the potencies.
8. To set up a presence in a business organization sector currently prohibited directing foreign investing with a position to getting to cognize the marketplace in expectancy that China will liberalize its ordinances in the futurity in line with its WTO commitments.

REPRESENTATIVE OFFICES ARE GENERALLY PERMITTED TO:
* rental office infinite and set up for public utility companies
* purchase office supplies
* organize the issue of work licenses and visas for foreign employees
* open and keep depository financial institution business relationships in local currency and foreign exchange
* display office marks and allot promotional stuffs
* employ local staff though labor service organizations (this demand might be partially elevated if the order of payment Toil Contract Law moves into issue.

REVENUE ENHANCEMENT OF REPRESENTATIVE OFICES
Although a Representative Office may not pursue in net profit-making activities and cannot have income, it is still somehow subject to revenue enhancement under certain circumstances (usually on a held net profit footing).

Two types of revenue enhancements are generally applicable to Representative Offices are Endeavour Income Revenue enhancement and Business concern Revenue enhancement. It may be subject to revenue enhancement, for representative, when it moves as business organization intimacy for proceedings that bring forth committees. The Endeavour Income Revenue enhancement rate applicable to Representative Offices is 33% (inclusive of a 3% local surcharge). Fortunately, however, the business organization activities of a Representative Office can be relieved under certain circumstances, although these freedoms alter from industry to industry.

Representative Offices are forced to pay value added taxation (VALUE-ADDED TAX), ingestion taxation, and use duties on any domestic purchases and/or imported equipment, as well as postage duties (usually a negligible sum of money). The Representative Office demand not pay place-related revenue enhancements for leased office infinite, so don’t permitted your landlord win over you otherwise.

LEGAL POSITION OF A REPRESENTATIVE OFFICE
A Representative Office is not viewed an independent legal entity but rather an extension of its parent company. Accordingly, the parent company must bear all of the Representative Office’s legal liabilities and debts. The foreign company should carefully safeguard the Representative Offices financial and corporate sealing waxes to insure that they are not misapplied.

The potency of the Top dog Representative is regularized not by Chinese foreign investing law, but rather by the foreign parent company’s jurisdiction of incorporation. However, the parent company is still subject to the jurisdiction of the local Chinese tribunals with regard to all contractual issues, including place rights.

SETTING UP A REPRESENTATIVE OFFICE
PROCEDURES

Representative Office Registration Procedures
Post-Establishment Registration Procedures
Service Charge

REPRESENTATIVE OFFICE REGISTRATION PROCEDURES
Foreign enterprises can establish representative offices in China upon application and approval.

Prerequisite Condition
According to the Chinese Government regulations, foreign traders, manufacturers, shipping agents, economic organizations and other groups shall report, according to their nature of business, to Ministry of Foreign Trade and Economic Cooperation (MOFTEC) or their relevant ministries, committees or Bureau which are authorized for the examination and approval of the set-up of representative offices.

The business activities of Representative Office can only be within the range of business connections, products introduction marketing, technology exchange and consulting service and etc. Direct business activities are prohibited.

Characteristics of a Representative Office
Representative office is a non-legal entity operating in China representing its parent company. A representative office is not allowed to engage itself in business activities, issue invoices on its own, remitting outward, signing sales or purchase contracts, or receiving income from services performed but may act as a liaison and promotion office for its parent company.

Application
Application is a two-step procedure. Step one: applicant should obtain approval from the respective authorities. Step two: registration should be made with the Administration For industry and Commerce. The foreign enterprise may engage an agent authorized by local Foreign Economic Relations and Trade Committee to handle its application on its behalf.

Approval Authorities
Authorities for approval are distributed among various State Council Departments and are delegated to their local offices. Applicants should apply for approval from different departments (at their local offices) according to their core activities. Some of the major types of industries and their approval authorities are:

Name of a Representative Office
The name of the Representative office should be in the form of ¨Name of the Enterprise + Name of the City + Representative Office (or Office).

Business Address
At the beginning of setting up the Representative Office, it is advised to decide the place and building where office is going to be located first, as the address of the proposed office will have to be mentioned in the application for approval.
Note the business address must be located in commercial buildings approved by the government.

Chief Representative
Chief Representative is the legal representative of the Representative in China, appointed by the board of directors of its parent company. Local representative is not required. Normally, if the chief representative does not intend to stay and work in Shanghai for over 90 days (within a year), no employment visa is needed. In case that the chief representative is a foreigner and intends to stay in China for over 90 days in a year, employment visa is needed.

Criteria for Granting Approval
Note that the Chinese Government works on an approval system instead of a registration system, that is, the application may be rejected without any reason given. It is therefore important that the necessary requirements should be fulfilled and documents required by the government must be fully and accurately submitted. Some of the requirements are:

(1) The parent company should have at least one year's operating results;
(2) A business address located in a building, which is approved by the government to house foreign enterprises, is required.
(3) If the documents are not in Chinese, certified translation by approved translator are required.
(4) Notarization of statutory documents of the parent company may be required.

Documents Required for Application
The applicant shall complete and submit Form for Establishing Representative Office by Foreign Enterprises and Form for Staff of Representative Office together with the following documents:

(1) An application duly signed by the chairman of the board or general manager of the foreign enterprise with the following details: name of the representative office, name of the chief representative, scope of business, duration and address, etc;
(2) Statutory documents of the parent company issued by authorities of the country or region of origin; e.g. Constitution, Certificate of Incorporation, Business Certificate, Tax Certificate;
(3) A capital and credit certification letter issued by a bank which has business relations with the applicant certifying its financial and credit standing;
(4) Power of attorney issued by the applicant to the person who shall be the Chief Representative, his curriculum vitae and photograph;
(5) License issued by the building in which the representative office will occupy;
(6) A brief summary of the operations and business of the company.

Examination and Approval Procedures
(1) The Shanghai Municipal Foreign Economic Relations & Trade Commission will examine the application. Upon approval, the Commission will issue an Approval Certificate to the applicant;
(2) The applicant shall, within 30 days of the approval, apply with the Shanghai Administration For industry and Commerce together with the Approval Certificate issued by the Commission and all the documents refer to as above. A Registration Certificate, a representative card and work permit will be issued to the applicant;

POST ESTABLISHMENT REGISTRATION PROCEDURES
Upon the issuance of the Registration Certificate, the applicant is required to complete post-establishment registration procedures, including:

(1) Making of Office Stamp (Office Seal)
(2) Opening of bank accounts
(3) Registration with the Inland Revenue, both national and local tax
(4) Application of Enterprise Code
(5) Registration with the State Statistic Bureau
(6) Registration with the Customs Office
(7) Application for Employment Visa (For foreign representative)
(8) Importing Office Equipment and Daily Necessities, if any

Time Required
It normally takes 30 days from receiving instructions and full particulars and necessary documents form the applicant to issue the Approval Certificate. Thereafter, the Post-establishment Registration procedures take about 30 days. However, a registration could be completed in 30 days.

Procedure for Change and Extension of the Representative
To change any registered items (e.g. Name of the organization, location, scope of business), or when the expiration date of registration certificate is imminent, the office should immediately report to the registration authorities for relevant procedures. The validity of resident representative offices of foreign enterprises is three years for each approval. In case of extension, the office should report to its proxy three months ahead of the expiration date for the extension applying procedures.

REPRESENTATIVE OFFICE IN CHINA
RESUME
A Representative Office (RO) means a branch office of a foreign company set up in China.

RO make sense if
The scale of operation is small.
There is no need to have strong presence in China.
Competitors are not here.
Contribution of registered capital is a concern.
A large sales team for domestic sales is not needed.

Limitation of RO
In general, Representative Office is not allowed to earn income. The major problem with the RO is the restriction of issuing invoices.
Representative Office pays tax on expenses.
The tax holiday is not applicable to Representative Office.
A Representative Office may only receive funds by transmission from its head office. It is not even allowed to receive cash or funds transferred from a domestic company.

Operation Period
The general period of operation of RO shall not exceed 3 years.

General Requirement
No registered capital is required.

Estimated Setup Time
About 2 months

Licenses and Certificates Obtained after Successfully Setup
Certificate of Approval for Establishing Representative Office
Business Registration License
Enterprise Code Certificate
Tax Registration Certificates
Certificate of Registration with the State Administration of Foreign Exchange
Statistics Registration License
Finance Registration License

SERVICE FEES
Requirements and registration procedures are slightly different from city to city. Therefore, our charges for the registration of a Representative Office vary from city to city.

As a general guideline, our charges are in the range from Euros 5,900.00

2nd a subsequent years:
Euros 1,050.00/annual

The charges do cover statutory filing fees, legalization costs and translation services. In particular, our charges normally cover the following services:

(1) Prepare pre-establishment documents (minutes, power of attorney etc.), arrange translation, notarization and certification form various authorities.
(2) Prepare and submit registration forms
(3) Obtain Certificate of Approval and Certificate of Registration
(4) Employ local staff and complete formalities in accordance with labor laws
(5) Post-establishment registration work, such as State and Local Tax registration etc
(6) Open bank account(s)

Through our local registered agent’s offices in Shenzhen and Beijing and affiliated agents in other major cities in China, we shall follow through the whole establishment process and save investors time and trouble.